Gov. Jerry Brown lines up unusual allies on his tax hike initiative

Anthony York, Los Angeles Times

SACRAMENTO — Some of the largest corporate interests in California have poured millions of dollars into an initiative campaign this year, as they have many times before. But this time, they're not asking voters to ease industry regulations or limit government power. Instead, they want approval of an $8-billion-a-year tax hike pushed by Gov. Jerry Brown.

Since taking office more than 18 months ago, the Democratic governor has held dozens of meetings with such unnatural allies as oil companies, insurers and telecommunications interests that typically stand with Republicans, taking stock of their concerns and pitching them on the need for higher taxes. Some paid for polling that helped guide the governor as he put his initiative together.

To rally them to his cause, he cast aside several ideas — new levies on oil extraction, soft drinks or alcohol, for example — that have proved more popular with voters than his blend of temporary sales and income taxes.

He opted for a quarter-cent hike in sales taxes and an increase of 1 to 3 percentage points on individual incomes of more than $250,000 after assurances from business leaders that even if they did not wholeheartedly embrace Proposition 30, they would not reach into their deep pockets to wage war against it. So far, it seems to be working.

"I think mostly we see the governor wanting to do the right things for the state's economy," said Jim Wunderman, president of the Bay Area Council business group. He has met several times with Brown, and the group will decide its position on Proposition 30 next month.

Labor unions and Democratic lawmakers spent almost $7 million qualifying Proposition 30 for the ballot. And Democratic interests contributed about 40% of the more than $10.3 million Brown has raised for the campaign ahead. But most of the governor's campaign fund — upward of $6 million — has so far come from a broad coalition of entrepreneurs, Indian tribes that own casinos and other business interests.

In addition to the energy corporations, insurance companies and telecommunications companies, hospitals, movie studios and utilities have also opened their checkbooks. Many of these groups have an interest in bills pending in the Legislature that may go to the governor for his signature or veto.

Others see Proposition 30's broad-based taxes as more desirable than additional levies on oil, alcohol or other items that could be among Brown's next options if voters reject his initiative.

"Proposition 30 is a reasonable solution that helps maintain the state's economic stability," says Karen Hanretty, spokeswoman for the American Beverage Assn., which gave $250,000 to the Yes on 30 campaign. "The beverage industry believes it is important to help Gov. Brown manage the state's chronic budget deficit."

The group is also wary of the consequences of continuing fiscal uncertainty in state government, where financial problems often trickle down to cities and counties that are also struggling to balance their books. Some local governments searching for ways to patch holes in their own budgets are looking to taxes that are anathema to the beverage industry.

The El Monte City Council placed a measure on the November ballot that would impose a 1-cent surcharge on every ounce of "sugar-sweetened" drinks sold in that city. A similar proposal will be before voters in the Bay Area city of Richmond this fall.

Soda makers hope Brown's proposed taxes will pass and stabilize the state's budget, limiting the need for such local measures in the future and averting any new tax on sugary drinks at the state level.

Alcohol and oil have also been popular tax targets. Democratic lawmakers have long sought an extraction levy on oil pumped in California, similar to what Alaska, Texas and other oil-producing states charge.

Energy interests have so far been able to use their influence with lawmakers, as well as the large sums they can pour into ballot-measure campaigns, to keep tax legislation and state voters at bay. But they fear that Democrats, eager for more revenue to pay for state services, may try an extraction tax again if Proposition 30 fails.

Oil interests have given more than $800,000 to the Yes on 30 campaign, led by Occidental Petroleum, which has contributed $500,000.

Other groups have given as they have backed, or tried to block, bills moving through the Legislature. Zuffa Inc., a company that promotes mixed martial arts, has been trying to stop a bill that would increase regulation on mixed martial arts fighting in California. The firm donated $50,000.

Timber interests have contributed $25,000 to Brown's campaign as the governor has pushed legislation to limit liability in wildfire lawsuits.

The No on 30 campaign is spearheaded by anti-tax activists who, in contrast to Brown, have struggled to raise money for their cause. As of Friday, the opponents had raised $480,000.

The foes hope to capitalize on voters' distrust of state government. After years of budget deficits, recent revelations of financial mismanagement in the parks department and Brown's crusade for an expensive high-speed rail program, they want Proposition 30 to be a referendum on Sacramento. They say the measure would hurt businesses while putting more money into the hands of irresponsible state lawmakers.

"There's no question that Prop. 30 will hurt small business in California," said No on 30 spokesman Aaron McLear. "Most businesses pay income tax instead of corporate taxes, and this will mean a tax increase of nearly 30% for thousands of small businesses in the state."

Although polls show voters inclined — for now — to go along with Brown's tax proposal, the governor himself has acknowledged the fragility of that support. But he said he crafted his plan with voter skepticism, the needs of the state and the concerns of the business community all in mind.

"You're never going to get the best that you want," he told the California Chamber of Commerce earlier this year, urging members to support his plan. "But you've got to take the best that you are able to do practically."